Analyzing Bargain Stocks

Wecon is a Hong Kong listed company engaged in a) Building Construction Services and b) Repair, Maintenance, Alteration, and Addition (RMAA) Services. It has over 30 years of experience in the industry and made a public offering of $125m in 2019 resulting in 25% free float. It was engaged in 11 projects, each worth over $10m as on July 2020. Customer concentration is fairly high with 34.1% of revenues generated from a single customer and 77.9% of revenues generated from the top four customers. There were only minor disruptions from Covid-19 and the Hong Kong government’s emphasis on increasing housing supply bodes well for the company’s prospects. Revenues and profits have grown steadily over the last five years culminating in $1.2bn in revenues and $50m in net profits for the year ended March 31st, 2020. The cash position is strong with net cash of $166m and net current assets of $255m. The liquid asset ratio stood at 1.88:1 representing a comfortable financial position. Recei

Hopefluent (‘company’) is a Hong Kong listed company that is one of the largest property agents in China. It operates in over 200 cities, with 39% of its revenues from Guangzhou province, and is involved in over 2,000 projects. The company services both property developers as well as secondary real estate servicers. It also generates 3% of revenues from financial services (mortgage referral and loan financing). The property market in China was depressed due to Covid-19. Despite this, property prices seemed firm due to strong demand for housing, and the industry appeared less hurt than others. The company generated growing revenues and EBITDA (12-14% margins) over the last few years – recording $6bn in sales and $775m in ebitda in 2019. This fell to $5.4bn and $771m in the last twelve months. The earnings were backed by strong cash flows. The company’s subsidiary, Hopefluent China, acquired Poly Consultancy Group (‘Poly’) with a share swap that resulted in 56.1% of the combined

Wisdom Sports Group is a Hong Kong listed company engaged in organizing marathon events in China. It operates two segments: a) Events operation and Marketing (Corporate sponsorship income) and b) Sports Services (Events organizing income, broadcast income, etc.). The business of the company has been decimated primarily due to organizational errors on two marathon events in 2018. This led to the cancellation of its prospective contracts with the China Athletics Association (CAA), which materially curtailed the operating business. Whatever operating income remained was virtually wiped out by Covid-19 as marathon events were non-existent in the first half of 2020. Unlike football and basketball events that restarted in China, marathons are mass events, which accelerates the spread of Covid-19. The sales of the company fell from a peak of $540m in 2018 to virtually nothing in the last six months. Large losses were reported in 2019, which included the complete write-off of the goodwill on b

Trio is a Hong Kong listed company engaged in the manufacture of industrial electronics. Its main products are electro-mechanical products, smart chargers, switch-mode power supplies, and smart vending systems – used in the medical, renewable energy industry, and vending industries. 72.5% of its shares are held by insiders. The company generates 79% of its sales in Europe, and 15% from the US. Management focus appears to be on increasing its presence in Europe with higher-margin products (such as smart vending systems). It has suffered as a result of Covid-19 and US-China trade tensions with a 30% drop in revenues over the last year. This was due to reduced customer demand, and delayed production due to disruption in manufacturing facilities. Sales peaked in 2018 at $886m before falling to $689m currently. EBITDA margins peaked in 2017 at 16% (the year it listed) and fell to 5% currently (with minor net losses). Applying a five-year average margin of 10% to recent sales, and dedu

G&M Holdings (GM) is a Hong Kong listed company that engages in the design and build, and repair and maintenance of podium facades, as well as curtain wall works. It has a track record of 20 years operating in Hong Kong. Insiders own 75% of the stock leaving 25% as free float. The company executes a handful of large contracts and customer concentration is high. The largest customer accounted for over half of revenues. It had three projects worth $497m on hand on June 30 th , with the largest two expected to end on December 31 st , 2021. They won two further contracts totaling $378.5m subsequent to June 30 th . In addition, they plan to bid for a $122.1m project. Covid-19 has hampered construction activity and increased costs of transporting materials from mainland China to Hong Kong. The uncertainty is also influencing property developers to implement tighter cost controls on awarded projects. Sales have been fairly steady - rising from $218m in 2015 to $304m in the last twel

Changan Minsheng is a Hong Kong listed logistics company that primarily transports finished vehicles, and vehicle components and parts – mainly for related parties of the China South Industries (CSI) Group, one of the four largest vehicle manufacturers in China, and dealers for Ford, Mazda, and Suzuki. The free float is less than 25% of the issued shares. Sale of vehicles is down substantially in China (16-17% compared to last year) due to weakness in demand, increased competition in logistics, and rising transportation costs. Revenues have fallen to $4.7bn in the last twelve months (ttm) from a peak of $8bn in 2016. Anaemic net profits during the boom years (sub 5% margins) have turned into losses for 2019 and the six months to 2020. TTM losses amounted to $126m. Average EBITDA, adjusted for the lower revenue base, amounts to $180m but capital expenditures are substantial. The depreciation and amortization charge amounted to $157m leaving negligible pre-tax earnings. This charge

HPC Holdings is a Hong Kong listed company with operations in Singapore. It is engaged in civil engineering and general building construction. It has two segments – Industrial buildings, and Infrastructure with Industrial accounting for the vast majority of revenues. The top two shareholders own 75% of the company stock resulting in a relatively low free float.  Construction activities in Singapore have been largely curtailed due to Covid-19 and the recent operations of the business has suffered as a result. The company generated consistent sales of $1.2bn and average annual net profits of just over $100m. Recent twelve-month sales and profits have tumbled to $1.1bn and $55m respectively. The financial position is strong with net cash of $210m. Net working capital value is $414m and net tangible asset value is $540m. Net working capital value consists largely of receivables, contract assets and net cash. Except for a secondary share issuance of $156m in 2018 priced at $0.45/sha